Blog Post

ESM? Ja, aber…

The German constitutional court has, as was widely expected, given a "yes-but" answer to the ESM treaty. The "but" refers to Article 8(5), sentence 1 "The liability of each ESM Member shall be limited, in all circumstances, to its portion of the authorised capital stock at its issue price." The crucial point here is the […]

By: Date: September 12, 2012 Topic: Macroeconomic policy

The German constitutional court has, as was widely expected, given a "yes-but" answer to the ESM treaty. The "but" refers to Article 8(5), sentence 1 "The liability of each ESM Member shall be limited, in all circumstances, to its portion of the authorised capital stock at its issue price." The crucial point here is the reference to the "issue price". A number of German critics previously argued that the German liability was not limited to €190 billion as explicitly stated in Article 8(1), but could be higher if the issue price of the authorised capital stock is increased.

A second "but" refers to Articles 32 (5), 34 and 35 (1). Here, the court demands that the two chambers of the German parliament (Bundestag und Bundesrat) need to be fully informed. According to the reading of the court, the three articles could be read in a way that requirement to fully inform the parliament is restricted. And indeed, Article 34 grants professional secrecy to the ESM governors, i.e. the ministers, and directors. This would essentially remove their obligation to fully inform their national parliaments, and in some circumstances might even limit their scope to inform parliament.

The Karlsruhe judges say that these two objections must be removed in a "völkerrechtlich bindend" way, meaning in a way that is binding in international law. My first reaction would be that this probably cannot be done by just agreeing in the German implementing law that the conditions are met. It may require changes to the ESM treaty, or a new treaty alongside the ESM. I suspect that this will significantly delay the implementation of the ESM.


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